The power of one

By Lauren Duensing

April 2009- A contested rebound, a spin move and a quick outlet pass to a teammate sprinting full speed down the court. The commentator excitedly says, "He’s got numbers," right before a flying slam dunk. Two on one is usually better than one on one, especially when competing with giants.

It’s not quite that simple when running a business, but the concept of "having numbers" is a cornerstone of the North American Steel Alliance’s, Laguna Hills, Calif., mission. Today, with 97 independent owners, Lonnie Terry, president and CEO, says the North American Steel Alliance’s main goal is to function as a single entity made up of both committed members and suppliers. "We’re unified in purpose, and we’re unified in direction. There’s strength in our numbers, and we need to prove it."

And since its inception, the North American Steel Alliance has focused on what it can bring to the independent service centers that are part of the co-op.

"At the beginning, the North American Steel Alliance was viewed as an experiment," says Miles Donovan, vice president. "We’re no longer an experiment, we’re a part of the market in the products we participate in. For a long time, the co-op was looked at as an alternative to consolidation, and certainly when we were an experiment, that was probably accurate. Now, we’re not an alternative to consolidation, we’re a form of consolidation."

Terry says some people identify the North American Steel Alliance as a group of staff people, some look at the alliance as a board of directors, some define it by its member/owners and others view it as a group of suppliers.

"In fact, we’re all of those things," he says. "The North American Steel Alliance has evolved into a monolithic, unified entity in which the suppliers to this group have recognized a value equation that previously didn’t exist."

An ability to adaptThe co-op’s strength comes from its ability to adapt and change with the marketplace.

"One of the key things that we’ve done as an organization is to constantly monitor our strategic plan," says Rich Merlo, CEO and president of JDM Steel, Chicago Heights, Ill. "We always go back to that and make changes and additions because our market dynamics are constantly changing."

Keeping up with an evolving marketplace led to a major change within the North American Steel Alliance’s community. Orlando Garcia, vice president of Everglades Steel, Miami, says, "We implemented a taking-possession-of-material model in addition to the way our members historically have purchased products. It’s been a fantastic success."

"The concept of the co-op taking possession of steel was something that was always out there at 40,000 feet," Merlo says. "You’d look down and say, ‘That would be neat if we could do that someday.’ However, [for NASA] it just made a lot of sense, especially in sheet products. We had a lot of guys that were scattered around the country, not huge quantities or tons, and combining them made a lot of sense for both the suppliers and us."

Combining to stay competitiveFor a small to midsized independent service center, the benefit of the co-op is, first and foremost, the ability to stay competitive. "For independent service centers, we combine, and we benefit from our purchasing power," Garcia says.

"It’s all about helping independent service centers stay strong and have a voice out there with these huge mill suppliers," says Merlo. "It gives us a sounding board to openly discuss our business practices and strategies with other small independents." Which, he says, provides reassurance regarding business plans and decision making.

"It’s not like you’re out there alone," says Fred Prine, president and CEO of Westfield Steel, Westfield, Ind. "It gives you a lot of confidence that you can compete with the larger companies."

"I can pick up the phone and communicate with other members and talk about how their market is doing and how their customers are doing," says Garcia. "I can call somebody in Chicago, somebody in California and somebody in Philadelphia. It’s a great advantage to be able to openly communicate with other independent service centers."

Tom Harrington, president of DuBose Steel, Roseboro, N.C., notes, "One of the problems for our company right now is from the overall demand side. We serve the nonresidential construction markets. We are going to market in a competitive environment currently where there is obviously more supply than demand. It’s challenging, but being part of something larger like NASA is a key to our strategy at DuBose Steel. We’re part of this organization, and we share information among members. We have actually gotten closer to our NASA suppliers through both good and bad markets."

Members and staff are careful to note, however, that the sharing is well within antitrust regulations and guidelines. Donovan says, "These conversations are about mutual support and best practices, certainly not about pricing."

Another benefit of the co-op comes from the services it provides. The North American Steel Alliance has 30-plus operational programs that "run anywhere from pens and pencils to lift trucks and cranes and capital equipment, so we’re able to leverage our buying power and share best practices based on the idea of community," says Randy Haas, director of marketing and program development.

"Most of our members are pretty busy running their business," says Donovan. "Instead of having 97 human resource guys, by being a member of NASA, you know that you have a staff and a team out there looking for those opportunities for you. We do it once, and it affects 97 folks. For every piece that we can fill, that’s one thing less that you have to dedicate resources to, and in this market, that’s a pretty big deal."

Insurance for allOne of the most recent programs for members is a captive insurance program, which gives them the opportunity to manage one of the largest costs facing companies today. "We wanted to offer alternatives to the traditional insurance, as it impacts our member companies," says Haas. "This is a major line-item expense. In addition, the other goal was to find where else we could apply the co-op model, where the collaboration and cooperation provide an advantage for a number of members, regardless of their size."

In brief, "a captive insurance is a member-owned insurance company," says Jim O’Connell, principal, director of program development, Barney & Barney, San Diego. "Not only do the members own a piece of the company, they actually create the company for their own specific needs and goods." He notes that more than 50 percent of the insurance dollars spent today are in captive and other alternative risk programs.

O’Connell says the companies that benefit the most from a captive insurance are "those willing to directly engage in a couple of things: No. 1 preventing accidents and No. 2 participating with the captive’s adjustors in claims handling." He says one of the main benefits of being directly involved is that companies have the ability to direct and manage claims handling, as well as share in the captive’s profits.

It’s important to note, however, that captive members aren’t separately liable. "We’ve put together a process where they’ve become a partner instead of a customer," says O’Connell. "The insurance companies pay the catastrophic risk. Nobody is running the risk of being bankrupted or adversely put in a bad situation."

Implementing the captive insurance program has been a dream of the North American Steel Alliance since 1998, and the idea fits right in with the co-op’s overall strategy.

"The captive provides a leadership model to accomplish a number of objectives," says Jeff Terry, director, Barney & Barney. "The members have greater control in the aspects of risk selection and pricing, loss prevention and claims management, and what really goes in stride with NASA is a sharing of best practices to achieve operational excellence."

As a result, not only did the members react positively, the insurance industry also recognized the benefits of a partnership with the North American Steel Alliance.

"This was the talk of this year’s Vermont Captive Insurance Association conference," says O’Connell. "It was also the talk of our managing partner’s annual captive owner’s conference. Every single underwriter of a major insurance company wanted to meet these folks, and when they met them, they wanted to do this deal. We had an unprecedented seven quotations for coverage. I’ve never seen a captive that was more desired in the industry."

"NASA, through its charter, epitomizes what a group captive insurance program should look like," says Jeff Terry. "There’s a collegiate spirit, there’s a strong communication process, and there’s an experienced and strong management team. The attributes that have fostered the success of NASA are strong indicators of success in the captive."

The captive insurance program is the newest example of the co-op’s value in the marketplace. The members, suppliers and staff members plan to continue to grow.

Although the North American Steel Alliance is no longer an experiment, the entrepreneurial spirit flows freely within its walls, and as a result, it’ll continue to define its role for years to come. MM